Medicare and Social Security Bankrupt

However, the more important dates are when Social Security and Medicare begin paying out more in benefits than they are receiving in taxes because that represents the time the government must start redeeming the bonds in the trust fund. To do that, the government will have to increase its borrowing on financial markets, raise taxes or divert money from other government programs.

For Medicare, the threshold when benefits exceed program income occurred last year. For Social Security, that threshold will be crossed in 2017, one year earlier than the 2018 date projected in last year's report. That change is certain to be cited by the administration as a sign of the urgency to act to deal with Social Security's funding woes. Democrats argue that the real crisis is in Medicare and that the administration is ignoring the health-care crisis.

Treasury Secretary John Snow, chairman of the six-member board of trustees for both programs, said the estimates "leave no question that Social Security reform is needed and it is needed soon. Reform of this system, for the sake of our children, grandchildren and the financial future of our country, is a very real and pressing matter."

However, Democratic critics drew different findings from the report, arguing that it showed that Social Security was not in a crisis situation and did not require the private accounts that the administration wants to establish for younger workers.

"Today's report confirms that the so-called Social Security crisis exists in only one place -- the minds of Republicans," said Senate Democratic Leader Harry Reid of Nevada. "In reality, the program is on solid ground for decades to come."

Rep.Sander Levin (D., Mich.) said that Mr. Bush "started this discussion off on the wrong foot by insisting on diverting trillions of dollars from Social Security to private accounts. ... This report offers the opportunity to remove private accounts from the table so we can come up with a thoughtful, bipartisan solution that will protect Social Security for generations to come."

The trustees said that Social Security's unfunded obligations total $4 trillion over the next 75 years, an increase from last year's projection of $3.7 trillion in unfunded liabilities. Mr. Snow said that to meet that shortfall, Social Security payroll taxes would have to be raised by 3.5 percentage points or benefits would have to be cut by 22%.

Mr. Bush has said he will not raise payroll taxes to deal with the funding problem although he has left the door open to raising the $90,000 cap on incomes subject to the payroll tax.

In the report, the trustees said that "the projected trust fund deficits should be addressed in timely way to allow for a gradual phasing of the necessary changes and to provide advanced notices to workers. The sooner adjustments are made, the smaller and less abrupt they will have to be."

The six-member board of trustees is headed by Mr. Snow and also includes Labor Secretary Elaine Chao, Health and Human Services Secretary Mike Leavitt and Social Security Commissioner Jo Anne Barnhart. In addition, there are two public trustees, Thomas Saving of Texas and John L. Palmer of New York.

Copyright © 2005 Associated Press